KARACHI: Foreigners are flocking back to the Pakistani equity market in search of value investing.
In the first two trading days this week, overseas investors were net buyers of Pakistani equity to the tune of $10 million. Figures released by the National Clearing Company of Pakistan (NCCPL) showed that on Tuesday offshore investors bought stocks worth $8.2 million (Rs669 million) and sold them valued at $1.28 (Rs104 million), resulting in net buy of $7 (Rs564 million). Net foreign buying on Monday stood at $ 2.6 million.
There is a visible change of heart on the part of foreign investors reflecting in the gathering momentum on portfolio investment.
For the previous two months (June-July), net foreign buying had aggregated to just about $18 million. But things were worst before.
Foreigners who scrambled for the exit door after the ‘freeze or floor’ was removed, stood out as net sellers of a huge $250 million worth of shares in the five months from January to May.
Mohammad Sohail at Topline Securities Pakistan says ‘net purchase of $18 million (for June, July) is relatively small considering huge inflows in other emerging markets, but the trend has provided some stability to local equities that posted a gain of 7.8pc in the outgoing month.’
Sajid Bhanji at Arif Habib Limited commented that there was possibly a change of perception towards country risk. Investors abroad were realising that Pakistan was after all, not going to go bust. The developments on the IMF funding front were encouraging and investors were entering the equity market to seek the first mover advantage.
He said that worldwide commodity play had started with oil prices pushing forward.
Sohail at Topline said that foreign portfolio investment in Pakistani capital market was steady but gradual, compared to the huge sums flowing in from US and Europe to all the emerging markets where bulls were already on the rampage.
‘A record net inflow was witnessed in emerging markets in the recent past led by China, India and Brazil. In the last two months, Mumbai Exchange saw an enviable inflow of $3.1 billion,’ says Sohail.
He said that in case things go through well with IMF in regard to the next tranche and going forward the country’s request for additional funding was given a patient hearing by the international lending agency, Pakistan stood a good chance of making back to the ‘emerging market MSCI index,’ from which it was downgraded to the less prominent MSCI ‘Frontier markets index.’
But in all that, there was one disconcerting element: The pressure on the Rupee. A stock broker said that some of his old foreign clients were reluctant to seek entry into the equity market until they were sure of the stability of the currency.
‘No one putting their money in dollars wants to make an incalculable loss,’ he said, but he offered comfort with the words: ‘Rupee will stabilise once the IMF funds flow in.’
He suggested that the undervalued, high yield stocks, could receive another boost, if the upcoming Monetary Policy Statement were to stipulate interest rate cuts in line with market expectations.
There have been no firm figures of total foreign portfolio investment in the country, but most brokers see a number rounding off to about $1 billion.
The influence of the off-shore equity investment in local market was thought to be growing, but some of old timers who have seen decades of entry and exit of ‘hot money’, are not much enthused.
‘Everything is subject to the whims of the foreign fund managers,’ says a stock broker. ‘The foreign portfolio investment exits as quickly as it enters,’ the broker commented and added: ‘It is good to see them flocking in, but when they migrate, all that they leave behind is a wasteland.’
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